And so Italy has found people to lend it some 9 billion euro of its 330 billion euro requirements for the next 12 months but with 10 year interest rates bordering on 7% which reflects a higher risk than many people’s mortgages. The fact that they can get finance for 6 month loans at about 3.5% shows that lenders expect things to be okayish in the short term and then deteriorate. Bond markets are powerful and their pricing is a clear indicator of future trends.

There are 2 other problems looming that the “person in the street” have yet to appreciate. These are a symptom of the bad lax finance practises of the past but their potential impact is more severe than current headlines.

Firstly European banks are not lending to each other like they used to because they have lost confidence in each other. As a results hundreds of billions of euro are being deposited in the ECB most nights as a short term solution. Banking system needs trust as people need oxygen,

Secondly there are reports form here in the UK that about a third or property loans are beginning to smell. (Economist) This is because the money was lent in the good times and because of accounting rules they are not written down in value as quickly as some people would prefer. A trip to the high street will show vacancies increasing but less obvious are tenants who no longer accept the automatic rent increases of the past. The loan values will have been based on generous assumptions no longer valid. More write downs to banks will scare their vulture colleagues in competing banks.

Banks may need nationalisation on a larger scale in 2012 than seen so far in which case the core commercial high street should be retained and the investment banking speculating components closed. Less glamour more boring banks are what we need as banks do not “make” money but their profits are like a tax on transactions for everybody else and they have been making abnormal profits: at least before their current bail outs.